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In re Craig

United States District Court, D. Colorado

December 9, 2015

In re: LU ANN RATZLAFF CRAIG, Debtor.
v.
SWIFT ROCK FINANCIAL, INC., d/b/a WORLD LAW GROUP, d/b/a WORLD LAW DEBT; ORION PROCESSING, LLC, d/b/a WORLD LAW PROCESSING, Defendants, DOUGLAS E. LARSON, Chapter 7 Trustee, Plaintiff-Appellee, GLOBAL CLIENT SOLUTIONS, LLC, Defendant-Appellant. Bankruptcy No. 14-14536-SBB-Chapter 7 Adversary No. 14-01507-SBB

ORDER AFFIRMING THE ORDER OF THE UNITED STATES BANKRUPTCY COURT

ROBERT E. BLACKBURN, District Judge.

Defendant-appellant Global Client Solutions, LLC (GCS) filed a timely appeal of an order of the United States Bankruptcy Court for the District of Colorado. In that order, the bankruptcy court denied the motion to compel arbitration filed by GCS. As the appellant, GCS filed an opening brief [#10][1], the appellee, Douglas E. Larson as the Chapter 7 Trustee in the underlying bankruptcy case, filed a response brief [#19], and GCS filed a reply brief [#22]. I affirm the order of the bankruptcy court.

I. JURISDICTION

Under 28 U.S.C. § 1334, United States District Courts have original jurisdiction in all civil proceedings arising in cases under Title 11, United states Code. I have jurisdiction to adjudicate this bankruptcy appeal under 28 U.S.C. § 158(a)(1).

II. STANDARD OF REVIEW

I am bound by the bankruptcy court's findings of fact, unless they are clearly erroneous. FED. R. BANKR. P. 8013; In re Branding Iron Motel, Inc., 798 F.2d 396, 399 (10th Cir.1986). A finding of fact is clearly erroneous only if the appellate court has the definite and firm conviction that a mistake has been committed. United States v. United States Gypsum Co., 333 U.S. 364 (1948). It is the responsibility of an appellate court to accept the ultimate factual determination of the fact finder, i.e., the bankruptcy court, unless that determination either (1) is completely devoid of minimum evidentiary support displaying some hue of credibility, or (2) bears no rational relationship to the supportive evidentiary data. Jardine's Professional Collision Repair, Inc. v. Gamble, 232 B.R. 799, *800 (D. Utah, 1999) (citing Gillman v. Scientific Research Prods. (In re Mama D'Angelo, Inc.), 55 F.3d 552, 555 (10th Cir. 1995)(internal citations omitted)); In re Dinviney, 225 B.R. 762, *769 (10th Cir. BAP (Okla.), 1998) (internal citations omitted). I review de novo conclusions of law reached by the bankruptcy court. In re Mullet, 817 F.2d 677, 678 (10th Cir.1987).

III. BACKGROUND

On June 7, 2012, the debtor, Lu Ann Ratzlaff Craig, entered into a contract with co-defendants Swift Rock Financial, Inc. d/b/a World Law Group, d/b/a World Law Debt (WLD) and Orion Processing LLC, d/b/a World Law Processing (WLP). Under the contract, WLD and WLP would provide Ms. Craig with certain debt resolution services. On the same date, Ms. Craig entered into a second agreement with Global Client Solutions, LLC (Global) for dedicated account services. Ms. Craig signed a Dedicated Account Agreement & Application (DAAA) requesting that Global establish and maintain a Dedicated Account in connection with her debt resolution program with WLD. Accordingly, Global established and maintained a Dedicated Account for Ms. Craig. In the DAAA, Ms. Craig acknowledged and agreed that Global is not a party to her debt resolution program and that any dispute between Global and Ms. Craig must be resolved in arbitration.

Under her contract with WLD and WLP, Ms. Craig paid WLD and WLP 9, 154.89 dollars in fees. Using funds deposited in her Dedicated Account, Ms. Craig paid 4, 100.00 dollars to one of her creditors in full or partial settlement of her debt to that creditor. Ms. Craig paid a total of 179.60 dollars in fees to Global, including a 5.00 dollar account set up fee, a monthly service charge of 9.45 dollars, and 1.50 dollars for each payment by phone. On November 18, 2013, Ms. Craig withdrew the remaining $65.51 from her Dedicated Account before closing the account and terminating her relationship with Global. On April 18, 2014, Ms. Craig filed for relief under Chapter 7 of the Bankruptcy Code.

In a complaint filed in the bankruptcy court, the Chapter 7 Trustee asserts claims against WLD, WLP, and Global. Complaint, [#5-1], pp. 4-8. The trustee seeks to recover the payments made by Ms. Craig to WLD, WLP, and Global, totaling 9, 334.49 dollars.

In the First Claim for Relief, the trustee seeks to recover these payments under 11 U.S.C. § 548(a)(1)(B). In the Second Claim for Relief, the trustee seeks to recover the same fees under §12-14.5-235, C.R.S., which is part of the Colorado Uniform Debt Management Services Act (CUDMSA). The trustee alleges the fees charged to Ms. Craig were in excess of the fees permitted under §§12-14.5-223 and 224, C.R.S. The trustee asserts the CUDMSA claim on behalf of the debtor in an effort to recover property of the bankruptcy estate. The trustee alleges that the defendants "have acted in concert to engage in the acts and practices described throughout this Complaint and each Defendant is jointly and severally liable for the acts and practices described below." Complaint [#5-1], pp. 4-8, ¶ 10.

Global responded to the complaint by moving to compel arbitration of the claims of the trustee under the arbitration clause in the contract between Global and Ms. Craig. Global disputes the allegation that WLD, WLP, and Global acted in concert and are jointly and severally liable. After briefing and hearing, the bankruptcy court denied the motion to compel arbitration. The court found the case brought by the trustee "is fundamentally a fraudulent transfer claim under 11 USC 548...." Oral Ruling [#5-2], CM/ECF p. 54. The § 548 claim is, the court found, "a direct claim by the Trustee and not a derivative claim of the Debtor and Section 548 simply gives the Trustee direct and substantial avoiding powers for the benefit of the estate and the Trustee's exercising core substantive rights in the Bankruptcy code...." Oral Ruling Regarding the Defendant Global Client Solutions, LLC's Motion to Compel Arbitration under the Federal Arbitration Act and Alternative Motion to Dismiss the Adversary Complaint Filed November 13, 2014 (Docket #7 and #8) and Plaintiff's Response Filed December 5, 2014 (Docket #13) [#5-2], CM/ECF p. 54. The bankruptcy court found that the § 548 claim is a core proceeding.[2]

Contrastingly, the bankruptcy court found that the CUDMSA state law claim, the second claim for relief, is not a core proceeding. Oral Ruling Regarding the Defendant Global Client Solutions, LLC's Motion to Compel Arbitration under the Federal Arbitration Act and Alternative Motion to Dismiss the Adversary Complaint Filed November 13, 2014 (Docket #7 and #8) and Plaintiff's Response Filed December 5, 2014 (Docket #13) [#5-2], CM/ECF pp. 51-61. The bankruptcy court re-stated and supplemented the bases for its ruling in its Order Certifying Global Client Solutions, LLC's Appeal as Frivolous and Denying Motion To Stay Adversary Proceeding [#18].[3] The court found that neither claim of the trustee, in the context of the bankruptcy of Ms. Craig, is appropriate for arbitration and denied the motion to compel arbitration of Global.

Global then filed this appeal and a motion to stay the adversary proceeding in the bankruptcy court pending its appeal of the order of the bankruptcy court denying the motion to compel arbitration. In a written order, the bankruptcy court denied the motion to stay. Order [#18]. First, the court found that the § 548 avoidance claim of the trustee is not derivative of the rights of the debtor and is not a claim which could be asserted by or on behalf of the debtor. Rather, the § 548 claim is a statutory claim "created in favor of creditors that can only be prosecuted by a trustee or debtor-in-possession, " as opposed to the debtor herself. Order [#18], p. 3. Addressing the § 548 claim, the bankruptcy court found that neither the trustee nor the creditors he ...


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